i think that ties into what the president is doing by commenting on policy and quantitative easing and calling for rate cycles to decline after they have just accelerated. jonathan: great to have you with us. you are going to stick with us. coming up on the program, further distortions and global fixed income. credit with subzero yields continuing to pile up. we head to europe next. that conversation is just around the corner. this is bloomberg "real yield." ♪ jonathan: from new york city for our audience worldwide, i'm jonathan ferro. bloomberg "real yield," starts right now. ♪ jonathan: coming up, the return of the goldilocks jobs report and u.s. payrolls bouncing back despite signs of a solid labor market, the president repeating his call for rate cuts, and further distortions in global fixed income. credit with subzero yield piling up. we begin with a big issue, the goldilocks jobs report returns. >> solid report. strong numbers. >> perfect report for the fed. >> corroborates what they've been saying all along.

>> inflation pressures remain pretty subdued. >> goldilocks job report. >> goldilocks job report. >> we are threading the needle. >> businesses have not lost confidence. >> chairman powell's famous not sure if it is debt or fake, but it is resting. >> people said, watch the phillips curve. we will be talking about that every month. happen. >> very little risk of wage inflation. >> huge growth when you look at leisure. that shift is a big deal because that means less inflation, more stable inflation. >> all of that points to the fact that things are looking good for the u.s. labor market at the moment. jonathan: continuing the conversation, we have robert mcteer. scott kim vaughan joins us from bmo.

krishna mamani joins us from oppenheimer funds. do you agree with all of that, is this a goldilocks job report? krishna: absolutely, it's been a goldilocks environment for quite a bit. the driver of that is relatively straightforward. lack of inflation. as long as we have no inflation, whether wage inflation or other sources, that is how things will be. jonathan: robert? robert: the inflation is moderate. the pce has been coming in solidly below 2, 1.67 the last few months. the job number is strong but there is no wage acceleration. the unemployment has been stable for six months. there are as many people coming into the workforce as getting new jobs. that means maybe it can go faster. i think this is a signal to the fed that maybe the president was ♪ right, which has to be really jonathan: i'm jonathan ferro. this is bloomberg "real yield." galling. when you are doing your best to i want to head to the auction do your job, and then suddenly block now, where we began in the slams you, and they are right. united states, with the this economy can maybe grow faster. we were growing at over 200,000

last year. we were not re-flating the economy. jonathan: yeah. >> maybe if they had that hiked rates so much, we would be investment grade market, where growing at a rapid rate and have lowe's sold bonds for the first inflation at target. time since joining the lowest jonathan: a couple of rate tier. assumptions underlying this they sold $3 billion of bonds in 2 parts with the longest portion of the offering yielding 1.625 percentage points above treasury. heading to emerging markets, conversation. tencent selling a $6 billion let's pick up on one of them. bond in the largest dollar a number of years ago, the idea that we must begin to the point offering in asia this year. the $3 billion 10-year bond where payroll decelerates, going yielding 1.45 percentage points back to 100,000. more than the current 10-year it would still mean we have a treasury. healthy labor market, just a and finally finally, in europe, mature one. why have we not gotten to that spain's option of 10-year notes was oversubscribed. point? why is it taking longer? burnished by juicier spreads. >> i think that one of the things that is frustrating investors and the fed likewise is the traditional assumptions 1.81 billion euros 2029 auction from your models that would tell priced at an average yield of 1.12%. i want to stay with europe. blackrock's rick rieder looking you that from a timeline perspective we should see those for a big move from ecb things where payrolls start president mario draghi. >> we looked at companies's weighted average cost of capital. the cost of their debt in europe matriculating toward a lower is much lower. running average. the cost of equity is too the particular element of this recovery, which is different, is expensive. all the rules have been broken. you had a lot of engineering of what i think the ecb will do is financial systems, low cost of weighted average capital, which is requiring the internal rate buy their equities. why do you do that? of return for projects companies if i want to do, improve are looking at. sentiment, look at the right there is still a lot of positive part of the capital stack, that

carry to making investments. is where the companies are that is probably one having a tough time. jonathan: still with me to discuss this is robert tipp, of the big drivers of what is scott kimball, and krishna keeping the payroll numbers a memani. krishna, your view on that suggestion? bit more buoyant than you would expect. krishna: in this cycle you krishna: i think payroll numbers are buoyant because there is still a large amount of labor can't rule out anything. force that is available and is out and can come in. having said that, if the ecb is the number that we should not focus on is the unemployment rate. buying stocks, we are basically at the end of the rope. i think that is what has that is what it would signal more than anything else. probably conditioned people to because everyone would have think perhaps in a misguided way. tried everything and basically at the end of the day, the u.s. even the germans are acquiescing economy is still growing at trend rate of 2%. to buying stocks at the central and as long as we have a trend bank level. that would be something. growth rate of 2% and there is jonathan: so for someone with still a large pool of available labor force that can come into exposure to european markets, the market, if the markets are you think that would push you into de-risking? going to remain resilient, and krishna: absolutely. that would signal to me that we the economy will be ok. jonathan: robert says we can run this economy harder and faster. are at the end of the world you have told me multiple times, five more years. rather than things getting better. >> yes. i think it would be a very big mistake on the part of the ecb. jonathan: that is your argument i think there are lots of things they can do in the interim for 2019. does this play into that? before they get to that step. krishna: this certainly plays jonathan: what can i do in the into that. interim? i hope robert tries to stress scott. >> i would have to agree.

the economy real hard, then it would not work out that way. that is how we were in 2018. as we are learning in the u.s., and the fed, working off of old policy signal can be equally formulas of the phillips curve important to policy implementation. was on the verge of making a a long story on that will be in policy mistake. that were to be put on play, the ecb certainly coming in and if the inflation pressure builds playing with tlro structures on putting more capital into the banking system, there is a up even a tad, the risk is that very limited total rate of return from the ecb's perspective, the transmission mechanism of the economy will the fed goes back to its old playbook and slams too hard. is not going to be fantastic, i would rather have the current 2% trend growth rate rather than stress it too hard. but they have to extend that facility, and they have to do it sooner than june would be my expectation. jonathan: wood robert? and that is why precisely i am wary of the fed surrendering in the january and february of this robert: i think that's right. year. because effectively, they didn't we have a lot of experience with have to give to the market all qe. when you look at japan, they the things that they gave. have been doing this since the 1990's. when you think about the end they could've simply stopped game, you strangle your tightening, and would have been government bond market. ok. jonathan: they did, and you look jonathan: that is happening. happier every time i see you. >> you basically make it krishna: i am happy because they stopped tightening. unrewarding and almost unsafe for investors. then they move on to equities. i am not happy that they what can happen in the long run basically put everything on the is you make the equities unsafe. table. jonathan: well, the president of right? you make them less attractive as the united states is calling for a performance vehicle and more dangerous. a whole lot more. take a listen to what president so i think that's the wrong way trump had to say about what he thinks the fed's next move should be. president trump: the fed should to go. i think that lending is the

drop rates. right channel. once you hit the zero lower bound, you have to make the i think they really slowed us down. there is no inflation. lending attractive enough to stimulate. jonathan: what strikes me as i would say in terms of insane, 10 years ago, you quantitative tightening, it would've called us conspiracy theorists for mentioning a should actually now be central bank buying equity. quantitative easing. jonathan: so many different ways to some degree, have we started to normalize the absurd, we could go with all of this. particularly in europe? when you look at the european price action, when you look at robert, i want to come to you first of all. the fed's next move and how the where these markets are priced president's calls play into it. at the moment? robert: that was quite expansive krishna: we are getting used to the absurd, i guess. call on his part for as i mentioned, in this cycle, quantitative easing. everything is possible. i think to the point that the but i think even there, there job growth has been strong, that is to the fed's credit. they have been more cautious are shades of possible. than any fed in terms of raising i think the germans buying rates, and that's been stocks would be something. spectacular for the length of this expansion. having said that, i think what the financial institutions are is the purpose of the central really well-capitalized here bank? compared to past cycles. the purpose of the central bank is not to support asset prices. and people are scarred by the the purpose of the central bank is to facilitate credit growth. past cycles. they are worried we will have a balloon if we get faster growth. and the credit-driven economic i don't think that's true. to krishna's point, your employment-population ratio is growth. very low. i think buying stocks does not there are a lot of people on the sidelines that really need to really help much. jonathan: the central bank come into the workforce. given the demographics, savings believes that is a means to an

levels in this economy. end, i assume. so i think it has quite a way to that is ultimately what the ecb go here. is doing, supporting assets. krishna: they are not supporting i think they could easily -- i'm assets. again, the purpose of not saying they would do this, quantitative easing is not to support asset prices. but they did put everything on that is what the outcome is. the table. the purpose of quantitative easing is to support credit they took those dots to flat, and i think powell is not an growth. economist, and he may be open to cutting rates. and there are lots of things jonathan: let me jump in. that the ecb can and will do to support credit growth. do you think he will, if they jonathan: the result is financial repression, and you think they can run it harder, guys have to deal with it. faster, will they cut rates, even without the typical scott, we hear a lot of people ask questions like, what is the conditions that we expect and bond market telling me, what can i infer from price? what is the signal at the associate with a cutting cycle moment? at the federal reserve? robert: this kind of report and can you really take any signal from european assets given where the price is right now? >> i think european assets are the data we have of the slowing interest-rate-sensitive sector, experiencing an elongated playbook from what we see in the inflation of a slowing u.s., which is robert mentioned interest-rate cycle falling away to you strangle the front end, from target, that would signal force investors to extend their to me, in my mind, that they duration and take credit risk. they are doing that at an should be cutting. krishna: they have demonstrated very extreme level. that given the opportunity they could. they didn't have to do all the and the return on investment has things that they did, but they did. become total return driven and however, if they do that, that less yield driven. investors sticking would be a mistake. much in the way that tightening in 2018 as aggressively as they with the playbook, continuing to did was a mistake.

cutting rates today, when things pile into credit. the big question is what happens next? are actually turning up, when is equities the next place you go? things are probably going to get closer to 2% in the second half i don't think so. i have to agree with krishna on of the year, that would be a that. policy mistake. i think that would be one step they would hurt their own too far and you would start blurring the lines of what your credibility. actual output of policy is supposed to be. the fed cannot afford that. jonathan: robert, let's talk jonathan: let's talk about the about your exposure to the credibility and the perception european credit risk. what is it? robert: positive. of independence. the spreads are substantial. operationally, the fed is independent. by definition, the and the ecb is basically going administration, as previous from thinking they were going to be ending their buy program to administrations have done, you can nominate who you like for the federal reserve. you can see if they get nominated and confirmed by the and raising rates, and now they are trying to sneak the deposit senate ultimately. i don't think we should be hypocrites about this. rate up to zero so it does not once upon a time, barack obama punish the banks. wanted to nominate larry they are ahead of the curve summers, who was once the a democrat treasury secretary. compared to japan. this feels different, though. they realize they may be stuck herman cain, stephen moore. not quite from the same mold as here for a long time. larry summers. investors are going out on the yield curve. they are having to drop their yield targets. they are going into spread product, and that will be supportive. the fundamentals are strong enough that you don't have deteriorating credit quality does this complicate, compromise that would suggest this is going the perception of the federal to be a near or intermediate reserve independence? krishna: if you want the fed to term credit blowout. say 9-9-9, you nominate herman jonathan: you are very cain. constructive on the global

as we don't want to do that, to some extent it is basically demeaning the fed. economy and global risks, but i it doesn't mean that you should not take input from the business community. and the fed has very detailed don't hear that from you, so what have you been doing in terms of managing your exposure processes to incorporate those on the continent? viewpoints. krishna: the way we have managed but nominating herman cain to our exposure on the continent is the fed, or for that matter, to recognize that owning bunds doesn't really do much for you. nominating stephen moore, where you may get some price he has said so many bad things, i don't think is the right move. appreciation, but even that is jonathan: i don't want to judge the intent of the administration. relatively modest. our exposure has been really i think ultimately, the european credit to make up for the negative yield. perception of this matters. and i think things have worked you guys define it. if these guys are confirmed to the federal reserve, in your out. at various points, when bunds minds, has this federal reserve back up from negative to plus 40, we pay the price. lost some form of independence? but through the cycle, it's been a good trade. scott. scott: i don't know if i would jonathan: can you down, which go there from a policy segment, sector, investment perspective saying they have grade, high yield? lost independence. i think you are starting to see just be specific as you can. a transition in the type of a krishna: primarily high yield is cycle analysis that the fed is where we are focused. doing. and typically you have people jonathan: what about you, scott? >> our exposure is a little economic cycle different. our more interesting story to expertise. play is the brexit story. jonathan: interesting. you look at 2004, 2006, gauge the reaction function from the >> we found some opportunities, monetary policy side from specifically u.k.-based banks. towards the front end, we see consec

yields in the fourth quarter pushed to 6.5%, 7%. that has been more of our opportunity. we have not taken up a lot of exposure in the rest of the european union. jonathan: hey guys, great to have you with me. you are going to stay with me. scott kimball, robert tipp, krishna memani. next up on the program, i want to get a market check on where the bonds have been. yields are higher this week by a basis point. creeping back toward 3% on a 30 year yield. still ahead on the program, the final spread, the week ahead featuring fed minutes, and an ecb decision. this is bloomberg "real yield." ♪

♪ jonathan: i'm jonathan ferro. this is bloomberg "real yield." it is time now for the final spread. coming up over the next week, fed vice chair richard clarida speaking at an event hosted by the minneapolis fed. we get u.s. cpi data and the

fomc releasing the minutes from its march meeting. plus, an ecb rate decision followed by mario draghi's news conference over in frankfurt. for final thoughts, robert tipp is with me, alongside scott kimball and krishna memani. robert, i know you are itching to get in on the european debate. tell me, what do you want to say? robert: in addition to the high yield, which i think is attractive, there are definitely opportunities there, as well as the investment grade, high quality clo's. i think the big contrarian play in europe continues to be sovereigns. they were really beat up in that crisis, and i think people are missing that, at any given point in time, one country will be in the headlines. italy, for example, now. in the background, the greeks are getting a billion dollars released to them. they are 300-plus over. they have a long way to go. spain, portugal. it is a contrarian play but i don't think this is anywhere near over. jonathan: underpinning that, is there a belief that you think the periphery, which has been

treading light credit for much of the last decade, will start trading like a sovereign again? robert: that's right, i see this is an ongoing trend. we have to watch this and see make sure that this actually plays out, that the improvement is not cyclical. the numbers on the face of it, for spain, they are comparable in credit to the united states. they have one of the better growth profiles in europe. there are going to be some political headlines there, but if they say stay with the program, and europe is one of the only places that actually has a rulebook on the fiscal side. on what there is going to be pressure for, i think the spreads will be cut in half over the next five years. jonathan: that is certainly contrarian. the periphery has behaved like credit much of the last 10 years. do you think that we are making that transition slowly? krishna: not at all. yes, the periphery is a good investment, but the thinking that they would start trading like sovereign bonds anytime

soon given the state of the economy in some parts of the continent, i don't think that's a realistic outcome in any investment horizon. jonathan: what do you think, scott? scott: i would have to agree with krishna. our position has consistently been that you have to approach some of the economies and their debt as credit functions for now. jonathan: that is the definition of contrarian. we have to wrap up the program. you know how we do that. it is the rapidfire round. three quick questions and three quick answers. first question, does the ecb cut the depot right before the year is out? yes or no? robert? robert: no. scott: no. krishna: maybe. jonathan: maybe. come on. u.s. 10 year yield, 2.3384%. have we seen the low for the year on the u.s. 10 year yield already in 2019 yes or no? robert? robert: no. scott: why not. krishna: yes. jonathan: third and final question.

does moran kaine get nominated and confirmed by the senate, yes or no? robert? robert: no. scott: no. krishna: i sure hope not. jonathan: there we go. three big calls from three great guests. robert tipp, scott kimball, krishna memani, thank you. i wish we had time for more on that. i really do. we will see you next friday at 1:00 p.m. new york time, 6:00 p.m. in london. this was bloomberg "real yield"" this is bloomberg tv. ♪

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